Social Security History

This is an archival or historical document and may not reflect current policies or procedures.

Arthur J. Altmeyer

Social Security Bulletin

Volume 1 August 1938 Number 8

Three Years' Progress Toward Social Security

Arthur
J. Altmeyer
Commissioner for Social Security

Government action to assure a basic minimum of security for
the American citizen and his family--a movement which entered upon
a new and national phase with the passage of the Social Security
Act on August 14, 1935--is a continuing and constantly evolving
process. From this long-range point of view, we have in these first
3 years laid merely the foundation of a structure which will develop
and change as time goes on, and probably in directions which none
of us can now foresee.

From another angle, however, looking back to 1935 with our present
perspectives, we are presented with a truly astonishing picture
of growth and development. In 3 years--a negligible fraction of
time in social and economic history--we have established and are
operating Nation-wide old-age insurance, Nation-wide unemployment
insurance, and Nation-wide public-assistance, public health, and
welfare programs. The record of what has already been accomplished
covers state and Territory in the Nation and probably affects directly
or indirectly almost all the families of the American people.

In the less than 2 years since the old-age insuranceprovisions
of the act were put into operation, we have established a smoothly
working machine for the payment of benefits to nearly every man
and woman in the country employed in commerce and industry. At the
present time 40 million workers--a number approximately 80 percent
of all the gainful workers in the country--have applied for old-age
insurance accounts, and new accounts are being set up at the rate
of about 450,000 a month. The earnings of workers reported by their
employers, are being entered on these accounts and lump-sum payments
have already been made to thousands of covered workers who have
reached age 65 and to relatives or the estates of those who have
died.

The job of establishing these millions of wage accounts for the
Nation's wage earners and of organizing the details of a system
for the payment of benefits when they become due presented an unprecedented
administrative undertaking. The maintenance of wage accounts alone
has repeatedly been called the biggest bookkeeping job in history.
We were faced, furthermore, with the necessity of getting under
way as rapidly as possible. Immediate establishment of administrative
machinery was made imperative by the provision that claims for single
cash payments could be filed even one day after the start of the
program, although payment of regular monthly benefits--the major
provision of this program--is not scheduled to begin until 1942.
Experts in administrative organization and large-scale accounting
procedures had begun planning for this enormous task as early as
1935, but the first actual steps were not taken Until November of
1936, when the Social Security Board, with the help of the Post
Office and the Treasury Departments, began the assignment of social
security account numbers. Thanks to the efficiency of the preliminary
work and the cooperation of these other Federal agencies, this initial
task was well in hand by January 1, 1937, when the old-age insurance
program went into effect.

Not even the war-time draft required so high a degree of active
cooperation on the part of individual citizens as this Nation-wide
initial assignment of account numbers. The rapidity with which it
was accomplished is particularly gratifying to the Social Security
Board. If evidence were needed, this was evidence in full measure
that the American people regard old-age insurance as a great step
forward in their march toward social security.

For sheer size and extent, the problem involved in establishing
and administering old-age insurance has few parallels, if any. In
unemployment insurance, however, the record of State legislative
and administrative activity and the development of cooperative working
relationships between the Federal Government and the several State
authorities, particularly in a field so completely new to this country,
is equally remarkable. Prior to consideration of the Social Security
Act by Congress, only one State--Wisconsin--had passed an unemployment
compensation law. While the act was being debated in Congress, several
States enacted such laws; by August 14, 1937, 2 years after the
passage of the Federal law, all 51 jurisdictions of the country
had enacted unemployment insurance laws and these had been approved
by the Social Security Board.

Unemployment Benefits

By the end of May 1938, over twenty-seven and a half million workers
had earned credits toward benefits under these State unemployment
insurance laws. In the 6 months ending June 30, 1938, some two and
a half million of these workers already had exercised their right
to compensation for varying periods of total or partial unemployment
under the laws of the 25 States in which benefits were paid during
some or all of this period. Almost $180 million in benefits was
thus added to the purchasing power of jobless workers during these
first 6 months. Moreover, by the end of June a million individuals
were receiving benefits averaging $10 a week.

In July, benefits became payable in three additional States bringing
the total of benefit-paying States to 28 by the third anniversary
of the Social Security Act. Before the act reaches its fourth anniversary,
in August 1939, every one of the States and Territories will have
reached benefit-paying status.

Another development, paralleling that of State machinery for the
payment of benefits, has been the strengthening and extension of
State employment services; together, these offer the worker a unified
job-finding and benefit-paying service. Since unemployment insurance
is based on the theory that payment of benefits is only part of
the task--is, in fact, a last resort--and that benefits will be
paid to an individual only if no suitable work can be found, the
role of the employment services in connection with unemployment
insurance is of utmost significance. By June 1935, 40 States had
taken steps to affiliate their State employment services, under
the terms of the Wagner-Peyser Act, with the United States Employment
Service of the Department of Labor. All 51 jurisdictions now have
such services. As benefit payments have become effective, services
have been expanded to several times their former size and have taken
on important additional functions. All insured unemployed workers,
including skilled workers who never before used the public employment
offices, register here; and more and more employers are beginning
to make use of the service. What is emerging is an efficient Nation-wide
labor exchange, offering the employer a well-organized labor market
and the worker a skilled placement service. It is still too early
to evaluate the full effect on employment conditions of this expanding
public employment service operating as an integral part of an unemployment
insurance system. Yet, even during the first 3 months of 1938--when
the employment services had just assumed their new responsibilities
and the State agencies were naturally giving their major attention
to the benefit-payment function--placements in private industry
held up considerably better under the stress of the recession in
the benefit-paying States than in those not yet paying benefits.

Employment service obviously cannot make jobs where there are none;
but it can bring the available jobs and the available men together
with the least possible loss of time and effort for both industry
and labor. In conjunction with unemployment insurance, it will increasingly
provide the worker with job security in a very reals sense--the
assurance of suitable work if it is to be found and, failing that,
the assurance of about half his regular pay, usually for a long
enough period to tide him over until a job is available.

The development of these old-age and unemployment insurance programs
is the most significant accomplishment of the last 3 years--significant
because they are new in this country, because they are designed
to meet two of the most serious risks to which wage earners are
exposed, and because they offer the majority of American workers
protection that comes to them as a right based on their individual
work and wages.

Public Assistance

But the act also recognizes that there are other needs which cannot
be met on an insurance basis. It, therefore, provides for Federal
cooperation with the States in three programs which aid on the basis
of individual need--to the aged,the blind, and
dependent children. These provisions also differ from unemployment
compensation and old-age insurance in other ways; and their since
the passage of the act, has been correspondingly different: They
are the outgrowth of more than 25 years of State experience; they
are designed to care for certain groups of people who are now in
need, as well as for those who may become needy in the future; and
they were geared to so into immediate action as soon as State plans
were approved and Federal appropriations made.

As a result of all these factors, the three public assistance programs
were the first parts of the act to get under way. By August 1936--5
months after Federal funds became available--38 States and the District
of Columbia were taking some part in these programs; by August 1937,
the total number of participating States and Territories had increased
to 50. With the additional plans approved during the past year,
all but six States are now taking part in at least two of these
programs, three-fourths of them in all three; and the one State
which has not adopted any program is talking steps toward full participation.

The increase in the numbers aided is even more striking. In August
1935, the month in which the Social Security Act was passed, there
were 314,000 recipients of old-age assistance, 33,000 blind persons,
and 110,000 families with 275,000 dependent children who received
these special types of public assistance under State laws at a total
State and local expenditure for the month of nearly $10 million.
By June 1938 there were 1,665,400 recipients of old-age assistance,
62,900 recipients of aid to the blind, and 261,000 families receiving
aid for 645,100 dependent children.

Combined Federal, State, and local expenditures for payments to
recipients of public assistance approximated $42 million for the
month of June 1938. Compared with August 1935, present public-assistance
payments both in States cooperating under the Social Security Act
and in other States have more than quadrupled. The part which Federal
cooperation is playing in this development is indicated by the fact
that today all recipients of old-age assistance in the United States,
about 93 percent of all families receiving aid for dependent children,
and about 62 percent of all persons receiving aid to the blind are
aided under plans to which the Federal Government Contributes.

Federal Cooperation

The rapid extension of public assistance during the past 3 years
does not imply a parallel increase in the number of dependents in
these groups. What it does mean is that the States, with Federal
help, have been able to provide for more persons who, dependent
in any case, would have suffered from neglect rimless supported
either by private provision or State or local tax funds. Through
the Social Security Act the Federal Government now assumes a substantial
portion of this already existing burden. During the period from
February 1936 through June 1938, the Federal share of assistance
to needy persons in States administering public assistance under
the Social Security Act amounted to $358 million.

Though the period of most rapid expansion has no doubt passed,
the full scope of these cooperative programs has probably not yet
been defined. In some States the allowances provided are not yet
adequate. Participation in aid to dependent children and aid to
the blind still lacks 10 States each of being Nation-wide, and in
many States the number now receiving assistance probably does not
yet represent the total who are eligible for aid under their laws.
Old-age assistance, which has shown the greatest growth, is now
providing for one out of every five persons 65 or over in the entire
country. Yet a recent estimate indicates that two out of every three
persons now in this age group are unable to support themselves from
either current earnings or savings of one sort or another. Such
a figure indicates the magnitude of the problem facing the aged
themselves, their families, and their government. Old-age assistance
is bearing a large share of the current need arising from old-age
dependency, and old-age insurance will serve to lessen dependency
in the future.

The financial help of the Federal Government is essential if the
States are to meet these existing needs for public assistance. But
Federal cooperation in public assistance has also helped the States
in other ways. By encouraging national standards, the Social Security
Act has promoted more efficient administration and more adequate
assistance and service on the part of the States. Within this national
pattern, both State agencies and the Social Security Board have
been working to develop continuously more effective programs.

Much the same thing is true of the health and welfare services
in which, under the act, the Federal Government is now cooperating
with the States. These services, like public assistance, help not
only to meet urgent present needs, but also to protect individuals
and communities against conditions which may lead to increasing
demands upon public funds. Public-health services have been extended
and strengthened with Federal aid in every State in the Union. Vocational
rehabilitation and maternal and child-health and welfare services
have been developed on substantially the same Nation-wide base.
These provisions of the act, directed, respectively, by the United
States Public Health Service, the Federal Office of Education, and
the Federal Bureau, have enabled the States and their communities
to set up for their own citizens safeguards which have long been
recognized as essential--and which, in the past, have too often
been wanting.

While an anniversary is, by custom, an occasion for taking justifiable
pride in past achievements, it may serve a still better purpose
if fallen as an opportunity for critical self-analysis and appraisal
of future trends. This continuous process of reexamination is particularly
essential in a field so new to us as the social insurances. Nowhere
else do we face such a complexity of human needs and economic limitations.
European experience has been helpful to us in pointing the way;
but for social insurance in America it could do little more. For
one thing, solutions which were practicable for our relatively small,
compact, and homogeneous European neighbors simply do not fit a
country with the vast geographical expanse and varied economic and
social outlook of ours. For another, American ideas of adequacy--of
what constitutes a minimum of security--are higher than those prevailing
in most other countries.

In general, the benefits provided by social insurance systems abroad
are low according to American standards, even when we take into
consideration differences in wage levels and costs of living. For
example, the younger American worker who is covered by the old-age
insurance program throughout his working life will receive benefits
which may range from about 30 percent of total wages for the higher-paid
worker to 60 percent or even more for the low-paid worker.

Similarly in unemployment insurance, benefits in this country are
based on the individual's prior earnings--earnings which, because
of higher American wage levels, yield benefits higher than those
provided on the whole by European unemployment insurance systems.

Dependents' Allowances

In foreign unemployment insurance systems the size of the family
is usually taken into consideration in determining the total amount
of benefit. For example, the wage earner may receive one amount
if he is single and a larger amount if he is married; this may be
increased still further if he has dependent children or other dependent
relax fives. Sometimes these systems are combined with an assistance
program, and the element of need enters into the computation of
the unemployment benefit after a certain period. While most foreign
old-age insurance benefits are related to past earnings or contributions,
it is not uncommon, to increase the benefit on behalf of dependent
children, and often the widow or even the wife iseligible
to insurance benefits when she has reached old age.

In contrast, our American traditions have led usto establish
a social insurance system in which benefits are geared solely to
earnings and the higher a man's earnings the higher his benefit
upon retirement. Recent discussion of social security in this country,
however, has recognized both the pros and cons of this problem.
In considering it, we must bear in mind not only the social
necessity of providing adequate protecting regardless of past
earnings but also the individual necessity of stimulating
initiative and thrift bark maintaining a close relationship between
benefits and past earnings.

In this connection, recent developments in England are of particular
interest. There be been a proposal to put a "wage-stop" on general
unemployment insurance benefits--that is, a ceiling set by previous
wages. In other words, it is proposed that previous earnings be
used as a measure of maximum benefits. A report recently published
by the British Unemployment Insurance Statutory Committee discloses
that numbers of unemployed workers are receiving as much in unemployment
insurance benefits as they had previously received in private employment--more.
The report points out that because wages, broadly speaking, make
no allowance for dependency and the unemployment insurance system
makes a large allowance, benefits in many individual cases are very
near or even above wagerates. These British difficulties
are the result of those features of flat benefits plus allowances
for dependents Our brief experience would indicate that the more
desirable solution probably lies in finding a middle ground. In
unemployment Compensation, it is true that our very exact relationship
between earnings and benefits is more difficult costly to administer.
Our present procedures can be modified in various ways while retaining
a substantial relationship between earnings and benefits, thereby
eliminating many administrative complexities.

Simplifying Administration

Within the scope of the present program, there are also urgent
problems of simplification and administrative coordination. Certain
provisions of tile State unemployment compensation laws are too
complex and cumbersome and likely to prove too expensive. Many State
administrators have already moved toward correction of these defects
slid at the moment, the Interstate Conference of Unemployment Compensation
Agencies is actively cooperating with the Social Security Board
in a concerted attack on the problem of simplifying existing administrative
procedures. The purpose of this cooperative effort is to formulate,
by the coming of the next legislative sessions in the States, recommendations
for changes in the present system which, though retaining its main
features, will be simpler and more economical for to worker, the
employer, and the State agencies.

A further problem in unemployment insurance is the necessity for
unified administration on the Federal level of the closely related
benefit payment and employment service functions. At present the
State agencies are responsible to two different Federal agencies.
Although, in nearly all States, employment service and unemployment
insurance have been made coordinate divisions of a single overhead
administrative agency the employment service is affiliated with
the United States Employment Service of the Department of Labor,
from which it receives part of its funds, at the same time that
the overhead agency is receiving grants from the Social Security
Board covering the entire cost of administering unemployment compensation
functions, including the greatly expanded State employment service
as well Unified direction of the two services at the Federal as
well as the State level is essential n the interests of economy
and efficiency. It cannot be emphasized too strongly that although
there are two functions--an insurance function and a placement function--the
program is an integrated one and should be administered as such.

Questions as to the relation of the unemployment insurance and
work-relief programs also have come up for discussion. There has
been criticism of the fact that an individual may be able to obtain
more as a WPA wage than he would receive as a weekly unemployment
benefit. While many problems in the interrelations of these two
programs remain to be worked out, much of the present discussion
arises from a misconception of the different functions of these
programs, and from circumstances under which unemployment insurance
began functioning.

Benefits and Security Wages

It is not the intention of the unemployment insurance program--or,
broadly speaking, of social insurance in general--to provide a worker
with the full amount he would have earned if he had not suffered
from the risk for which he is compensated. Men ordinarily do not
take out even private insurance in amounts sufficient to make good
the whole loss to their families if they become sick or die. By
definition, unemployment insurance applies to members of the active
labor force--to men and women who must have been working in the
recent past in order to have obtained their rights to benefit. Under
ordinary circumstances, many or most of them will be back in a job
before they have used up these rights. Their benefits help them
to tide over relatively brief periods of unemployment. During such
periods, benefits are theirs as a right, not as a wage
given in return for services, and they are free to use their time
to look for a new job. If a job has not been found by the time these
and other resources are exhausted, the Works Program provides a
second line of defense.

Since unemployment insurance is intended to deal with those who
have recently lost jobs, the Works Program ordinarily provides for
workers who already have suffered considerable periods of adversity.
To obtain this employment, individuals must be certified as
In need of relief. Payments under the Works Program are wages,
paid for a given number of hours of work a week, rather than benefits
to help tide over intervals between jobs.

Our Works Program came into being first under the stress of emergency,
and had been in operation for a considerable period before unemployment
insurance became operative. As a result, many insured workers who
had lost their jobs some months prior to the start of benefit payments
found themselves, when benefits became payable, going from the Works
Program to benefits rather than the reverse.

Another difficulty has arisen from the fact that since unemployment
compensation is an insurance program in which benefits are related
to past wages there has been an adverse effect on the duration of
benefits because of the period in which payments were started. Workers
draw benefits limited, in general, by their employment experience
in preceding months. Employment started a severe downward course
nearly a year ago which has served to restrict the total amount
of benefits for which many workers could qualify at this time.

I am not implying that we should be satisfied with the present
provisions for unemployment benefits; it is to be hoped that in
time benefits may be made more liberal in duration or amount or
both. I do wish, however, to point out the nature and purpose of
these benefits, and to emphasize the definite and limited purpose
of this, as of any other, insurance program.

Liberalizing Old-Age Insurance

In the field of old-age insurance, the future holds prospects of
progressive extension of the coverage of the system and liberalization
of the benefits which may be paid. Proposals to extend the coverage
of old-age insurance to agricultural workers, domestic servants,
and certain other groups not included under existing provisions,
are those most likely to receive early consideration. In principle,
there is no reason why old-age insurance should not apply to every
wage earner and even to those who are not technically wage earners
but who are the operators of small enterprises, that is, the "self-employed."
Because of the practical administrative difficulties involved, this
is an ideal which probably cannot be attained immediately. There
is every reason to believe, however, that it will not be long before
a number of wage earning groups, now excluded, will be brought into
the system.

In addition, the President of the United States in a letter to
me as Chairman of the Social Security Board expressed his interest
in liberalizing theold-age insurance system so
as to start payment of monthly benefits at an earlier date, pay
such benefits in more liberal amounts during the early years, and
add survivors' benefits. It is worth noting that an increase in
present benefits in order to provide for aged wives and for widows
of beneficiaries and for the young children of insured workers who
die before reaching retirement age would introduce into our insurance
system many additional beneficiaries. There is considerable sentiment
behind such a move and should it materialize the costs involved
will cause the present often violent and confused discussion of
the probable future size of the old-age insurance reserve to take
on an even more academic character.

Whatever changes may come, however, and even though we may thus
extend old-age insurance benefits, it is reasonably safe to assume
that we shall continue to relate basic annuity payments to past
wages. In this country we make a very clear distinction between
benefits paid on an insurance basis and assistance granted only
on a showing of need. Whereas insurance and assistance provisions
are combined under some European systems, our programs for insurance
and assistance are entirely separate. Old-age assistance is thus
a second line of defense in a twofold program. Moreover, our higher
concept of adequacy finds expression in the public-assistance programs
as well as in the insurances so that the assistance allowances granted
in this country, small as they are in certain instances, are in
general at higher levels then those provided elsewhere.

In the face of demands in some quarters for larger insurance benefits
and for larger assistance allowances, it might be well for us to
keep in mod that if our program is to endure and to progress, we
must strike a balance between human need and financial resources
to the end that the community as a whole will be benefited by the
arrangements made for the security of the individual.

One respect in which our social insurance system is not yet as
complete as those of many European countries is in its failure to
provide compensation for loss of income because of illness or disability.
The Social Security Act attempts to prevent or alleviate some of
the distress caused by illness through Federal grants to the States
which enable them to strengthen their public-health services, to
extend care for crippled children, and to provide for maternal and
child health and for vocational rehabilitation of the physically
disabled. Compensation for the enormous wage loss due
to illness and disability would seem to be our most important next
step toward security of income. The recent National Health Conference
was invaluable as a means of clarifying many of the complex problems
involved in establishing an adequate Nation-wide program of health
protection and in suggesting alternative lines along which solutions
may be sought.

Sickness Risks

It should seem that compensation for periods of temporary illness
might well be coordinated administratively, when it comes, with
our existing insurance provisions. If, as seems likely, it develops
as a Federal-State program, the taxes necessary to finance the system
might well be collected at the same time as unemployment insurance
contributions and by the same agency. Payment of disability benefits,
however, presents a distinct problem. For while unemployment compensation
benefits are paid to workers who are unemployed but able-bodied
and available for work, disability benefits are paid to workers
who are unemployed under exactly opposite circumstances, that is,
because of inability to work. With workmen's compensation already
in operation for a number of years in practically all States, it
may be desirable to take advantage of the experience of these agencies
in administering the new but closely related disability insurance
payments. These problems must be explored at length and with regard
for the corresponding need to expand social insurance or other methods
of providing security against the costs of sickness care.

With increasing coverage of old-age insurance; with integration
of unemployment insurance and public employment services; with more
adequate public-assistance and welfare measures for those incapable
of self-help; and with provisions against the risks of sickness
in the offing, we approach a time when the American citizen will
have a basic minimum of protection against the major hazards which
beset him from infancy to old age. Absolute "security" is, of course,
neither possible nor desirable. Social security measures are intended
not to abolish the need for individual initiative and personal effort
toward a secure existence but rather to give each individual at
least a chance to build that security for himself. We cannot achieve
"the abundant life" or anything like it through social security
legislation. What we can do and are doing is to develop, through
the Social Security Act and other measures, a system of interrelated
safeguards against want and misfortune so that no individual in
our society may fall below this basic American level of security.

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